DEFENSE ACQUISITIONS

Addressing Incentives is 

Key to Further Reform 

Efforts

Statement of Michael J. Sullivan, Director 

Acquisition and Sourcing Management

Testimony 

Before the Committee on Armed 

Services, U.S. Senate

For Release on Delivery 

Expected at 9:30 a.m. ET

Wednesday, April 30, 2014

GAO-14-563T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-563T, a testimony 

before the Committee on Armed Services, 

U.S. Senate

April 30, 2014

DEFENSE ACQUISITIONS

Addressing Incentives is Key to Further Reform

Efforts 

Why GAO Did This Study

DOD’s acquisition of major weapon 

systems has been on GAO’s high risk 

list since 1990. Over the past 50 years, 

Congress and DOD have continually 

explored ways to improve acquisition 

outcomes, including reforms that have 

championed sound management 

practices, such as realistic cost 

estimating, prototyping, and systems 

engineering. While some progress has 

been made, too often GAO reports on 

the same kinds of problems with 

acquisition programs today that it did 

over 20 years ago. 

The topic of today’s hearing is: 

“Reform of the Defense Acquisition 

System.” To address the topic, this 

testimony discusses (1) the 

performance of DOD’s major defense 

acquisition program portfolio; (2) the 

management policies and processes 

currently in place to guide those 

acquisitions; (3) the incentives to 

deviate from otherwise sound 

acquisition practices; and (4) 

suggestions to temper these 

incentives. This statement draws from 

GAO’s extensive body of work on 

DOD’s acquisition of weapon systems.

What GAO Found

The Department of Defense (DOD) must get better outcomes from its major

weapon system investments, which in recent years have totaled around $1.5 

trillion or more. Recently, there have been some improvements, owing in part to 

recent reforms. For example, 50 of the 80 weapon system programs in the 

portfolio reduced their total acquisition costs over the past year, and a number of 

them also improved their buying power by finding efficiencies. Still, cost and 

schedule growth remain significant; 42 percent of programs have had unit cost 

growth of 25 percent or more. 

DOD’s acquisition policy provides a structured framework for developers to 

gather knowledge at appropriate stages that confirms that their technologies are 

mature, their designs stable, and their production processes are in control. The 

Weapon Systems Acquisition Reform Act of 2009 and DOD’s recent “Better 

Buying Power” initiatives introduced significant changes that, when fully 

implemented, should further strengthen practices that can lead to successful 

acquisitions. While recent reforms have benefited individual programs, it is 

premature to say there is a trend or a corner has been turned. The reforms still 

face implementation challenges and have not yet been institutionalized within the 

services. 

Reforms that focus mainly on the mechanisms of the acquisition process are only 

partial remedies because they do not address incentives to deviate from sound 

practices. Weapons acquisition is a complex system, complete with incentives to 

pursue programs that are not always feasible and affordable. These incentives 

stem from several factors. For example, the fragmented decision making 

paradigm in DOD and different participants involved in the acquisition process

impose conflicting demands on weapon programs so that their purpose 

transcends filling voids in military capability. Also, the budget process forces 

funding decisions to be made well in advance of program decisions, encouraging 

undue optimism. Finally, DOD program managers’ short tenures and limitations 

in experience and training can foster a short-term focus and put them at a 

disadvantage with their industry counterparts. 

Drawing on its extensive body of work in weapon systems acquisition, GAO sees 

several areas of focus regarding where to go from here: 1) examining best 

practices to integrate critical requirements, resources, and acquisition decision 

making processes; 2) attracting, training, and retaining acquisition staff and 

managers so that they are both empowered and accountable for program 

outcomes; 3) at the start of new programs, using funding decisions to reinforce 

desirable principles such as well-informed acquisition strategies; 4) identifying 

significant risks up front and resourcing them; 5) exploring ways to align budget 

decisions and program decisions more closely; and 6) investigating tools, such 

as limits on system development time to improve program outcomes.

These are not intended to be all-encompassing, but rather, practical places to 

start the hard work of holding decision makers more accountable and realigning 

View GAO incentives with desired results. -14-563T. For more information, 

contact Michael J. Sullivan at (202) 512-4841 

or sullivanm@gao.gov.
Page 1 GAO-14-563T 

Chairman Levin, Ranking Member Inhofe, and Members of the 

Committee:

I am pleased to be here today to discuss weapon system acquisitions and 

where reform should focus next. Weapon systems acquisition has been 

on GAO’s high risk list since 1990.1 Over the past 50 years, Congress 

and DOD have explored ways to improve acquisition outcomes, including 

actions like the Weapon Systems Acquisition Reform Act of 2009 and the 

Department of Defense’s (DOD’S) own recent “Better Buying Power”

initiatives. These and other reforms have championed sound 

management practices, such as realistic cost estimating, prototyping, and 

systems engineering. DOD’s declining budgets and the impact of 

sequestration have lent additional impetus to reduce the costs of 

weapons. While some progress has been made on this front, too often we 

report on the same kinds of problems today that we did over 20 years 

ago. The cost growth of DOD’s 2013 portfolio of weapon systems is about 

$448 billion and schedule delays average more than 2 years. To get 

better results the focus should not be on adding to or discarding 

acquisition policies, but instead on the incentives that work against them.

Today, I will (1) provide summary cost and schedule information on 

DOD’s portfolio of major weapon systems; (2) describe the policies and 

processes in place to guide those acquisitions; (3) discuss incentives to 

deviate from otherwise sound acquisition practices; and (4) suggest ways 

to temper these incentives. This statement draws from our extensive body 

of work on DOD’s acquisition of weapon systems and the numerous 

recommendations we have made both on individual weapons and 

systemic improvements to the acquisition process. The work on which 

this testimony is based was conducted in accordance with generally 

accepted government auditing standards. Those standards require that 

we plan and perform the audit to obtain sufficient, appropriate evidence to 

provide a reasonable basis for our findings and conclusions based on our 

audit objectives. We believe the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives.

 1 GAO, High Risk Series: An Update, GAO-13-283 (Washington, D.C.: Feb. 2013).
Page 2 GAO-14-563T 

There can be little doubt that we can—and must—get better outcomes 

from our weapon system investments. As seen in table 1, the value of 

these investments in recent years has been on the order of $1.5 trillion or 

more, making them a significant part of the Federal discretionary budget.

Table 1: Analysis of DOD Major Defense Acquisition Program Portfolios

Fiscal year 2014 dollars

Portfolio size

Fiscal year

2011 2012 2013

Number of programs 95 85 80

Total planned commitments $1.7 trillion $1.5 trillion $1.5 trillion

Commitments outstanding $813 billion $744 billion $682 billion

Portfolio indicators

Change in development costs from first full estimate 54 percent 49 percent 51 percent

Change in total acquisition cost from first full estimate 40 percent 38 percent 42 percent

Estimated total acquisition cost growth $465 billion $411 billion $448 billion

Share of programs with 25 percent or more increase in program 

acquisition unit cost since first full estimate 41 percent 39 percent 42 percent

Average delay in initial operating capability 23 months 27 months 28 months

Source: GAO analysis of DOD data.

Note: The Ballistic Missile Defense System is excluded from the analysis of both size and portfolio 

indicators as it does not have comparable cost and schedule data. Other programs were also 

excluded from the analysis of indicators when comparable data did not exist.

As one can see, cost and schedule growth for DOD’s aggregate portfolio 

remain significant. For example, when measured against programs’ first 

full estimates, the total cost of the portfolio has increased by nearly $448 

billion with an average delay of 28 months in initial operating capability.2

Also, as indicated in table 1, 42 percent of programs have had unit cost 

growth of 25 percent or more. On the other hand, we have recently seen 

some modest improvements in a large number of programs. For example, 

50 of the 80 programs in the portfolio reduced their total acquisition costs 

over the past year. A number of these programs have improved their 

buying power by finding efficiencies.

 2 GAO, Defense Acquisitions: Assessments of Selected Weapon Programs, 

GAO-14-340SP (Washington, D.C.: March 31, 2014).

Trends in DOD’s 

Portfolio of Major 

Acquisitions
Page 3 GAO-14-563T 

While these modest improvements are encouraging, the enormity of the 

investment in acquisitions of weapon systems and its role in making U.S. 

fighting forces capable, warrant continued attention and reform. The 

potential for savings and for better serving the warfighter argue against 

complacency.

When one thinks of the weapon system acquisition process, the image 

that comes to mind is that of the methodological procedure depicted on 

paper and in flow charts. It is the “how to” side of acquisitions. DOD’s 

acquisition policy takes the perspective that the goal of acquisition is to 

obtain quality products that satisfy user needs in a timely manner at a fair 

and reasonable price.3 The sequence of events that comprise the process 

defined in policy reflects principles from disciplines such as systems 

engineering, as well as lessons learned and past reforms. The body of 

work we have done on benchmarking best practices has also been 

reflected in acquisition policy.4 Recent, significant changes to the policy 

include those introduced by the Weapon Systems Acquisition Reform Act 

of 2009 and the Department’s own “Better Buying Power” initiatives 

which, when fully implemented, should further strengthen practices that 

can lead to successful acquisitions.5 The policy provides a framework for 

developers of new weapons to gather knowledge at appropriate stages 

that confirms that their technologies are mature, their designs are stable, 

and their production processes are in control.6 These steps are intended 

 3 Department of Defense Directive 5000.01, The Defense Acquisition System (May 12, 

2003 and certified current as of Nov. 20, 2007).

4 GAO, Best Practices: DOD Can Achieve Better Outcomes by Standardizing the Way 

Manufacturing Risks Are Managed, GAO-10-439 (Washington, D.C: Apr. 22, 2010); Best 

Practices: Capturing Design and Manufacturing Knowledge Early Improves Acquisition 

Outcomes, GAO-02-701 (Washington, D.C.: July 15, 2002); Best Practices: Better 

Matching of Needs and Resources Will Lead to Better Weapon System Outcomes, GAO01-288 (Washington, D.C.: Mar. 8, 2001); and Best Practices: Better Management of 

Technology Development Can Improve Weapon System Outcomes, GAO/NSIAD-99-162 

(Washington, D.C.: July 30, 1999).

5 Pub. L. No. 111-23 as amended. Office of the Under Secretary of Defense, Acquisition, 

Technology and Logistics Memorandum: “Better Buying Power: Mandate for Restoring 

Affordability and Productivity in Defense Spending” (June 28, 2010). Office of the Under 

Secretary of Defense, Acquisition, Technology and Logistics Memorandum: “Better Buying 

Power 2.0: Continuing the Pursuit for Greater Efficiency and Productivity in Defense 

Spending” (Nov. 13, 2012).

6 Interim Department of Defense Instruction 5000.02, Operation of the Defense 

Acquisition System (Nov. 26, 2013).

One Side of 

Acquisitions: Stated 

Policy and Process
Page 4 GAO-14-563T 

to ensure that a program will deliver the capabilities required utilizing the 

resources—cost, schedule, technology, and personnel—available. 

Successful product developers ensure a high level of knowledge is 

achieved at key junctures in development. We characterize these 

junctures as knowledge points. While there can be differences of opinion 

over some of the specifics of the process, I do not believe there is much 

debate about the soundness of the basic steps. It is a clear picture of 

“what to do.”

Table 2 summarizes these steps and best practices, organized around 

three key knowledge points in a weapon system acquisition.

Table 2: Best Practices for Knowledge-Based Acquisitions

Knowledge Point 1: Start of product development activities (Milestone B)

Demonstrate technologies sufficiently to ensure they are mature and work as intended 

Ensure that requirements are informed by a preliminary system design 

Establish cost and schedule estimates based on the preliminary design and other system engineering tools (such as prototyping) 

Constrain development to 5 years or so in anticipation of future upgrades 

Conduct independent assessment of risks and cost 

Develop a suitable contract strategy

Fully fund the planned development work

Hold major milestone decision review to begin product development 

Knowledge Point 2: Critical design review midway through product development 

Complete 90 percent of engineering design drawing packages to ensure design is stable

Demonstrate with system integration prototype that design performs as intended 

Identify critical manufacturing processes and key system characteristics

Establish targets and growth plan for product reliability 

Conduct independent cost estimate 

Conduct system critical design review to ensure design meets requirements 

Knowledge Point 3: Initiation of production for delivery to customer (Milestone C)

Demonstrate critical manufacturing processes on a pilot production line

Build and test production-representative prototypes to demonstrate product in operational environment and to achieve reliability goal

Collect data on critical manufacturing processes and demonstrate that they are in statistical control to ensure quality

Conduct independent cost estimate 

Conduct major milestone decision review to begin production 

Source: GAO.
Page 5 GAO-14-563T 

Our work over the last few years shows that, to the extent reforms like the 

Weapon Systems Acquisition Reform Act and DOD’s Better Buying 

Power initiatives are being implemented, they are having a positive effect 

on individual programs. For example, we found that over 80 percent of 

the 38 programs included in our annual assessment of weapon programs 

this year had conducted a “should-cost” analysis—one of DOD’s Better 

Buying Power initiatives—and reported an anticipated savings of 

approximately $24 billion, with more than half of this amount to be 

reallocated to meet other DOD priorities. In addition, we recently reviewed 

several programs to determine the impact of the Weapon Systems 

Acquisition Reform Act and found that the programs are:

• making early tradeoffs among cost, schedule, and technical 

performance requirements,

• developing more realistic cost and schedule estimates,

• increasing the amount of testing during development, and

• placing greater emphasis on reliability.

These improvements do not yet signify a trend or suggest that a corner 

has been turned and, in fact, we found in our annual assessment of 

programs that most are not yet fully following a knowledge-based 

acquisition approach. The reforms themselves still face implementation 

challenges, such as staffing and clarity of guidance and will doubtless 

need refining as experience is gained. We have made a number of 

recommendations on how DOD can improve implementation of the 

Weapon Systems Acquisition Reform Act.7

To a large extent, the improvements we have seen tend to result from 

external pressure exerted by higher level offices within DOD on individual 

programs. In other words, the reforms have not yet been institutionalized 

within the services. We still see employment of other practices—not 

prescribed in policy—such as concurrent testing and production, 

optimistic assumptions, and delayed testing. These are the same kinds of 

practices that perpetuate the significant cost growth and schedule delays 

that have persisted in acquisitions through the decades. They share a 

common dynamic: moving forward with programs before the knowledge 

needed to reduce risk and make those decisions is sufficient.

 7

GAO, Weapons Acquisition Reform: Reform Act Is Helping DOD Acquisition Programs 

Reduce Risk, but Implementation Challenges Remain, GAO-13-103 (Washington, D.C.: 

Dec. 14, 2012).
Page 6 GAO-14-563T 

We have found that programs proceed through the critical design review 

without having a stable design, although we have made

recommendations on the importance of this review and how to prepare for 

it.8 Programs also proceed with testing and production before they are 

ready. The F-35 Joint Strike Fighter program is a classic example of how 

concurrency can erode the cost and schedule of an acquisition. Further, 

some programs are significantly at odds with the acquisition process. 

Among these I would number the Ballistic Missile Defense System, 

Littoral Combat Ship, and airships. We also recently reported on the 

Unmanned Carrier-Launched Airborne Surveillance and Strike program 

which proposes to complete the main acquisition steps of design, 

development, testing, manufacturing, and initial fielding before it formally 

enters the acquisition process.9

The fact that programs adopt practices that run counter to what policy and 

reform call for is evidence of the other pressures and incentives that 

significantly influence program practices and outcomes. I will turn to these 

next.

An oft-cited quote of David Packard, former Deputy Secretary of Defense, 

is: “We all know what needs to be done. The question is why aren’t we 

doing it?” To that point, reforms have been aimed mainly at the “what”

versus the “why.” They have championed sound management practices, 

such as realistic estimating, thorough testing, and accurate reporting.

Reforms have also added program decision points, reviews, and reporting 

requirements to help ensure these practices are used. We need to 

consider that these reforms mainly address the mechanisms of weapon 

acquisitions. Seen this way, the practices prescribed in policy are only 

partial remedies. The acquisition of weapons is much more complex than 

this and involves very basic and strongly reinforced incentives to pursue 

weapons that are not always feasible and affordable. Accordingly, rival 

practices, not normally viewed as good management techniques, 

comprise an effective stratagem for fielding a weapon because they 

reduce the risk that the program will be interrupted or called into question.

 8

GAO-02-701

9 GAO, Defense Acquisitions: Navy Strategy for Unmanned Carrier-Based Aircraft System 

Defers Key Oversight Mechanisms, GAO-13-833 (Washington, D.C.: Sep. 26, 2013).

Another Side of 

Acquisitions: 

Incentives to Deviate 

from Sound Practices
Page 7 GAO-14-563T 

I will now discuss several factors that illustrate the pressures that create 

incentives to deviate from sound acquisition management practices.

A key cause of poor acquisition outcomes is the mismatch between the 

validated capability requirements for a new weapon system and the 

appropriate systems engineering knowledge, funding, and time that is 

planned to develop that new system. DOD’s three key decision making 

processes for acquiring weapon systems—requirements determination, 

resource allocation, and the acquisition management system—are 

fragmented, making it difficult for the department to achieve a balanced 

mix of weapon systems that are achievable and affordable and provide 

the best military value to the warfighter when the warfighter needs them.

In addition, these processes are led by different organizations, making it 

difficult to hold any one person or organization accountable for saying 

“no” to an unrealistic requirement or for tempering optimistic cost and 

schedule estimates. While the department has worked hard to overcome 

this fragmented decision making paradigm and policies have been written 

to force more integrated decisions and more accountability, we continue 

to see programs that have experienced cost and schedule growth. This is 

because weapon system programs often begin with validated 

requirements that have not been informed by solid systems engineering 

practices, often do not represent true “needs” as much as “desires,” have 

optimistic cost and schedule estimates, and, all too often, are 

unachievable. Program managers are handed a business case that can 

be fatally flawed, and usually have no recourse other than to execute it as 

best they can and therefore cannot be held accountable.

The process of planning and executing the program is (1) shaped by 

many different participants and (2) far more complex than the seemingly 

straightforward purchase of equipment to defeat an enemy threat. 

Collectively, as participants’ needs are translated into actions on weapon 

programs, the purpose of such programs transcends efficiently filling 

voids in military capability. Weapons have become integral to policy 

decisions, definitions of roles and functions, justifications of budget levels 

and shares, service reputations, influence of oversight organizations, 

defense spending in localities, the industrial base, and to individual 

careers. Consequently, the reasons “why” a weapon acquisition program 

is started are manifold and thus acquisitions do not merely provide 

technical solutions.

Mismatch between 

Requirements and 

Resources

Conflicting Demands
Page 8 GAO-14-563T 

While individual participants see their needs as rational and aligned with 

the national interest, collectively, these needs create incentives for 

pushing programs and encouraging undue optimism, parochialism, and 

other compromises of good judgment. Under these circumstances, 

persistent performance problems, cost growth, schedule slippage, and 

difficulties with production and field support cannot all be attributed to 

errors, lack of expertise, or unforeseeable events. Rather, a level of these 

problems is embedded as the undesirable, but apparently acceptable, 

consequence of the process. These problems persist not because they 

are overlooked or under-regulated, but because they enable more 

programs to survive and thus more needs to be met. The problems are 

not the fault of any single participant; they are the collective responsibility 

of all participants. Thus, the various pressures that accompany the 

reasons why a program is started can also affect and compromise the 

practices employed in its acquisition.

There are several characteristics about the way programs are funded that 

create incentives in decision-making that can run counter to sound 

acquisition practices. First, there is an important difference between what 

investments in new products represent for a private firm and for DOD. In 

a private firm, a decision to invest in a new product, like a new car design, 

represents an expense. Company funds must be expended that will not 

provide a revenue return until the product is developed, produced, and 

sold. Thus, leading companies have an incentive to follow a disciplined 

approach and acquire requisite knowledge to facilitate successful product 

development. To do otherwise could have serious economic 

consequences. In DOD, there can be few consequences if funds are not 

used efficiently. For example, as has often been the case in the past, 

agency budgets generally do not fluctuate much year to year and, 

programs that experience problems tend to eventually receive more 

funding to get well. Also, in DOD, new products in the form of budget line 

items can represent revenue. An agency may be able to justify a larger 

budget if it can win approval for more programs. Thus, weapon system 

programs can be viewed both as expenditures and revenue generators.

Second, budgets to support major program commitments must be 

approved well ahead of when the information needed to support the 

decision is available. Take, for example, a decision to start a new 

program scheduled for August 2016. Funding for that decision would 

have to be included in the Fiscal Year 2016 budget. This budget would be 

submitted to Congress in February 2015—18 months before the program 

decision review is actually held. DOD would have committed to the 

Funding Dynamics
Page 9 GAO-14-563T 

funding before the budget request went to Congress. It is likely that the 

requirements, technologies, and cost estimates for the new program—

essential to successful execution—may not be very solid at the time of 

funding approval. Once the hard-fought budget debates put money on the 

table for a program, it is very hard to take it away later, when the actual 

program decision point is reached.

Third, to the extent a program wins funding, the principles and practices it 

embodies are thus endorsed. So, if a program is funded despite having 

an unrealistic schedule or requirements, that decision reinforces those 

characteristics instead of sound acquisition practices. Pressure to make 

exceptions for programs that do not measure up are rationalized in a 

number of ways: an urgent threat needs to be met; a production capability 

needs to be preserved; despite shortfalls, the new system is more 

capable than the one it is replacing; and the new system’s problems will 

be fixed in the future. It is the funding approvals that ultimately define 

acquisition policy.

DOD has a unique relationship with the Defense industry that differs from 

the commercial marketplace. The combination of a single buyer (DOD), a 

few very large prime contractors in each segment of the industry, and a 

limited number of weapon programs constitute a structure for doing 

business that is altogether different from a classic free market. For 

instance, there is less competition, more regulation, and once a contract 

is awarded, the contractor has considerable power.10 Moreover, in the 

Defense marketplace, the firm and the customer have jointly developed 

the product and, as we have reported previously, the closer the product 

comes to production the more the customer becomes invested and the 

less likely they are to walk away from that investment.11 While a Defense 

firm and a military customer may share some of the same goals, certain 

key goals are different. Defense firms are accountable to their 

shareholders and can also build constituencies outside the direct 

business relationship between them and their customers. This 

relationship does not fit easily into a contract.

 10 Barry D. Watts and Todd Harrison, Sustaining Critical Sectors of the Defense Industrial 

Base (Washington, D.C.: Center for Strategic and Budgetary Assessments, 2011).

11 GAO, Best Practices: Successful Application to Weapon Acquisitions Requires 

Changes in DOD’s Environment, GAO/NSIAD-98-56 (Washington, D.C.: Feb. 24, 1998).

Industry Relationship
Page 10 GAO-14-563T 

J. Ronald Fox, author of Defense Acquisition Reform 1960-2009: An 

Elusive Goal, sums up the situation as follows. “Many defense acquisition 

problems are rooted in the mistaken belief that the defense industry and 

the government-industry relationship in defense acquisition fit naturally 

into the free enterprise model. Most Americans believe that the defense 

industry, as a part of private industry, is equipped to handle any kind of 

development or production program. They also by and large distrust 

government ‘interference’ in private enterprise. Government and industry 

defense managers often go to great lengths to preserve the myth that 

large defense programs are developed and produced through the free 

enterprise system.” But neither the defense industry nor defense 

programs are governed by the free market; “major defense acquisition 

programs rarely offer incentives resembling those of the commercial 

marketplace.”

12

Dr. Fox also points out that in private industry, the program manager 

concept works well because the managers have genuine decision-making 

authority, years of training and experience, and understand the roles and 

tactics within government and industry. In contrast, Dr. Fox concludes 

that DOD program managers often lack the training, experience, and 

stature of their private sector counterparts, and are influenced by others 

in their service, DOD, and Congress. Other acquisition reform studies 

over the past decade have highlighted this issue as well.13 The studies 

highlight the need for a more professional program manager cadre within 

each of the military services, and new incentives and improved career 

opportunities for acquisition personnel. In 2006, we reported that program 

managers indicated to us that the acquisition process does not enable 

them to succeed because it does not empower them to make decisions 

on whether the program is ready to proceed forward or even to make 

relatively small trade-offs between resources and requirements as 

unexpected problems are encountered. Program managers said that they 

 12 J. Ronald Fox, Defense Acquisition Reform, 1960-2009: An Elusive Goal (Washington, 

D.C.: U.S. Army Center of Military History, 2011).

13 Defense Business Board, Report to the Secretary of Defense: Linking and Streamlining 

the Defense Requirements, Acquisition, and Budget Processes (2012); Assessment Panel 

of the Defense Acquisition Performance Assessment Project for the Deputy Secretary of 

Defense, Defense Acquisition Performance Assessment Report (Jan, 2006).

The Right People
Page 11 GAO-14-563T 

are also not able to make personnel shifts to respond to changes 

affecting the program.14

We have also reported on the lack of continuity in the tenure of key 

acquisition leaders across the timeframe of individual programs. A major 

acquisition can have multiple program managers during product 

development. For example, the F-35 Joint Strike Fighter program has had 

six different program managers since it was approved to start 

development in 2001. Other key positions throughout the acquisition 

chain of command also turn over frequently. For example, the average 

tenure of the Under Secretary of Defense for Acquisition, Technology and 

Logistics since the position was established in 1986 has been only about 

22 months. Consequently, DOD acquisition executives do not necessarily 

stay in their positions long enough to develop the needed long-term 

perspective or to effectively change traditional incentives. Moreover, their 

decisions can be overruled through the cooperative actions of other 

acquisition participants. The effectiveness of reforms to the acquisition 

process depends in large measure on a cadre of good people who may 

be inadequately prepared for their position or forced into the near-term 

perspective of their tenures. In this environment, the effectiveness of 

management can rise and fall on the strength of individuals; 

accountability for long term results is, at best, elusive.

I do not necessarily subscribe to the view that the acquisition process is 

too rigid and cumbersome. Clearly, this could be the case if every 

acquisition followed the same process and strategy without exception, but 

they do not. We repeatedly report on programs where modifications of the 

process are approved. DOD refers to this as tailoring, and we see plenty 

of it.

While one should always be looking to improve the process and make it 

more efficient, at this point, the focus should be to build on existing 

reforms by holding decision makers more accountable, tackling existing 

incentives, and providing new ones. To do this, we need to look differently 

at the familiar outcomes of weapon system acquisitions—such as cost 

growth, schedule delays, large support burdens, and reduced buying 

 14 GAO, Best Practices: Better Support of Program Managers Needed to Improve 

Outcomes, GAO-06-110 (Washington, D.C.: Nov. 30, 2005).

Where Do We Go 

From Here?
Page 12 GAO-14-563T 

power. Some of these undesirable outcomes are clearly due to honest 

mistakes and unforeseen obstacles. However, they also occur not 

because they are inadvertent but because they are encouraged by the 

incentive structure. I do not think it is sufficient to define the problem as 

an objective process that is broken. Rather, it is more accurate to view 

the problem as a sophisticated process whose consistent results are 

indicative of its being in equilibrium. The rules and policies are clear about 

what to do, but other incentives force compromises. The persistence of 

undesirable program outcomes suggests that these are consequences 

that participants in the process have been willing to accept.

Drawing on our extensive body of work in weapon system acquisition, 

there are six areas of focus regarding where to go from here. These are 

not intended to be all-encompassing, but rather, practical places to start 

the hard work of realigning incentives with desired results.

Hold decision makers accountable from top to bottom: Our work over the 

years benchmarking best practices at leading commercial product 

developers and manufacturers has yielded a wide range of best practices 

for efficiently and quickly developing new products to meet market needs.

Firms we visited described an integrated process for establishing product 

requirements, making tradeoffs among cost and product performance well 

ahead of a decision to begin product development, and ensuring that all 

decision makers—requirements setters, product developers, and 

finance—agree to and are held accountable for the business case 

presented to the program manager for execution of a new product’s 

development. These firms had trained professionals as program 

managers with backgrounds in technical fields such as engineering and 

various aspects of project management. Once empowered with an 

achievable, executable business case, they were in charge of product 

development from beginning to end. Therefore, they could be held 

accountable for meeting product development cost, schedule, and 

performance targets.

Today, getting managers to make hard decisions, when necessary, and 

say no to those that push unrealistic or unaffordable plans continues to be 

a challenge because the critical processes to acquire a new weapon 

system are segregated, independent, and have different goals. DOD must 

be open to examining best practices and implementing new rules to really 

integrate the processes into one and holding all communities accountable 

for decisions. I do not pretend to have all the answers on how to change 

the current environment, but it is clear that top decision makers cannot be 

held accountable to work in concert on such large and critical investments 
Page 13 GAO-14-563T 

unless they begin with an executable business case. Congressional and 

DOD leadership must be in concert on this.

Attract, train, and keep acquisition staff and management: Dr. Fox’s book 

does an excellent job of laying out the flaws in the current way DOD 

selects, trains, and provides a career path for program managers. I refer 

you to this book, as it provides sound criticisms. We must also think about 

supporting people below the program manager who are also instrumental 

to program outcomes, including engineers, contracting officers, cost 

analysts, testers, and logisticians. There have been initiatives aimed at 

program managers and acquisition personnel, but they have not been 

consistent over time. RAND, for example, recently analyzed program 

manager tenure in DOD and found that the intent of policies designed to 

lengthen tenure may not have been achieved and no enforcement 

mechanism has been readily apparent over time.15 RAND indicates this 

could be because of the fundamental conflict that exists between what 

military officers need to do to be promoted and their tenure as program 

managers. Unless these two things are aligned, such that experience and 

tenure in an acquisition program can be advantageous for promotion, 

then it appears unlikely that tenure policies will consistently yield positive 

results. The tenure for acquisition executives is a more challenging 

prospect in that they arguably are at the top of their profession and 

already expert. What can be done to keep good people in these jobs 

longer?

I am not sure of the answer, but I believe part of the problem is that the 

contentious environment of acquisition grinds good people down at all 

levels. In top commercial firms, a new product development is launched 

with a strong team, corporate funding support, and a timeframe of 5 to 6 

years or less. In DOD, new weapon system development can take twice 

as long, have turnover in key positions, and every year must contend for 

funding. This does not necessarily make for an attractive career. Several 

years ago, the Defense Acquisition Performance Assessment Panel 

recommended establishing the military department’s service acquisition 

executives as a five-year, fixed-term position to add leadership continuity 

and stability to the acquisition process.16 I believe something like this 

 15 RAND, Management Perspectives Pertaining to Root Cause Analyses of NunnMcCurdy Breaches, Vol 4. (2013)

16 Defense Acquisition Performance Assessment Report, 2006
Page 14 GAO-14-563T 

recommendation is worth considering. And perhaps the military services 

should examine the current career track for acquisition officers to ensure 

it provides appropriate training, rewards, and opportunities for 

advancement.

Reinforce desirable principles at the start of new programs: The principles 

and practices programs embrace are determined not by policy, but by 

decisions. These decisions involve more than the program at hand: they 

send signals as to what is acceptable. If programs that do not abide by 

sound acquisition principles win funding, then seeds of poor outcomes 

are planted. The highest point of leverage is at the start of a new 

program. Decision makers must ensure that new programs exhibit 

desirable principles before they are approved and funded. Programs that 

present well informed acquisition strategies with reasonable and 

incremental requirements and reasonable assumptions about available 

funding should be given credit for a good business case. As an example, 

the Presidential Helicopter, Armored Multi Purpose Vehicle, and 

Enhanced Polar System are all acquisitions slated to start in 2014, with 

development estimates currently ranging from nearly $1 billion to over 

$2.5 billion. These and other programs expected to begin system 

development in 2014 could be viewed as a “freshman” class of 

acquisitions. It would be beneficial for DOD and Congress to assess them 

as a group to ensure that they embody the right principles and practices. 

Recent action by DOD to terminate the Army’s Ground Combat Vehicle 

program, which was slated to start this year, and instead focus efforts on 

selected science and technology activities reinforces sound principles. On 

the other hand, approving the Unmanned Carrier-Launched Airborne 

Surveillance and Strike program despite its running counter to sound 

principles sends a conflicting message.

Identify significant program risks upfront and resource them: Weapon 

acquisition programs by their nature involve risks, some much more than 

others. The desired state is not zero risk or elimination of all cost growth. 

But we can do better than we do now. The primary consequences of risk 

are often the need for additional time and money. Yet, when significant 

risks are taken, they are often taken under the guise that they are 

manageable and that risk mitigation plans are in place. In my experience, 

such plans do not set aside time and money to account for the risks 

taken. Yet in today’s climate, it is understandable—any sign of weakness 

in a program can doom its funding. This needs to change. If programs are 

to take significant risks, whether they be technical in nature or related to 

an accelerated schedule, these risks should be declared and the resource 

consequences acknowledged. Less risky options and potential off ramps 
Page 15 GAO-14-563T 

should be presented as alternatives. Decisions can then be made with full 

information, including decisions to accept the risks identified. If the risks 

are acknowledged and accepted by DOD and Congress, the program 

should be supported.

A potential way to reduce the risks taken in acquisition programs is to 

address the way in which DOD leverages its science and technology 

enterprise. Leading commercial companies save time and money by 

separating technology development from product development and fully 

developing technologies before introducing them into the design of a 

system. These companies develop technology to a high level of maturity 

in a science and technology environment which is more conducive to the 

ups and downs normally associated with the discovery process. This 

affords the opportunity to gain significant knowledge before committing to 

product development and has helped companies reduce costs and time 

from product launch to fielding. Although DOD’s science and technology 

enterprise is engaged in developing technology, there are organizational, 

funding, and process impediments which make it difficult to bring 

technologies into acquisition programs. For example, it is easier to move 

immature technologies into weapon system programs because they tend 

to attract bigger budgets than science and technology projects. Creating 

stronger and more uniform incentives that encourage the development of 

technologies in the right environment to reduce the cost of later changes, 

and encourage the technology and acquisition communities to work more 

closely together to deliver the right technologies at the right time would be 

beneficial.

More closely align budget decisions and program decisions: Because 

budget decisions are often made years ahead of program decisions, they 

depend on the promises and projections of program sponsors. 

Contentious budget battles create incentives for sponsors to be optimistic 

and make it hard to change course as projections fade in the face of 

information. This is not about bad actors; rather, optimism is a rational 

response to the way money flows to programs. Aside from these 

consequences, planning ahead to make sure money is available in the 

future is a sound practice. I am not sure there is an obvious remedy for 

this. But, I believe ways to have budget decisions follow program 

decisions should be explored, without sacrificing the discipline of 

establishing long-term affordability.

Investigate other tools to improve program outcomes: There are ways to 

structure an acquisition program that would create opportunities for better 

outcomes. Key among these are: limits on development time (time certain 
Page 16 GAO-14-563T 

development of 5 years), which limits the scope of the development task; 

evolutionary or incremental product development, wherein the initial 

increment of a new weapon system adds value for the warfighter, is 

delivered to the field faster, and can be followed with block upgrades as 

technologies and funding present themselves; and strategies that focus 

more on incentivizing overall cost reduction over profit limitation. DOD 

should investigate the potential of these concepts as it structures and 

manages programs moving forward. Central to opening an environment 

for these tools is the need to focus on requirements that are well 

understood and manageable. This would allow the department to offer 

contracts that place more cost risk on the contractor and less on the 

government. A prime example of this is the KC-46 Tanker program that is 

being developed under a fixed-price development contract with incentives 

for holding cost down. The government and industry felt comfortable with 

that arrangement specifically because it was an incremental program 

based on a commercial airframe. The first development program is to 

militarize a commercial aircraft to replace a portion of the existing KC-135 

fleet. Future increments may be approved to replace the rest of the KC135 fleet and the KC-10 fleet and provides DOD an opportunity to include 

the new technologies. Also, the contractor had significant systems 

engineering knowledge about the design and the ability to meet the 

requirements. A word of caution: if time certain development (e.g., 5 

years), incremental acquisition strategies, and contracts that incentivize 

cost reduction over profit limitations are to be explored, the government 

will need to examine whether they have the contract management and 

negotiation expertise to do this. DOD has begun to examine ways to 

strengthen contract incentives and restructure profit regulations through 

its Better Buying Power initiatives; however, it is too soon to tell whether 

these efforts will lead to needed improvements.

Mr. Chairman, this concludes my statement and I would be happy to 

answer any questions.

(121217)
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